Mr. Abe's Three Arrows Need Course Adjustment

Many Japanese appear to be excited about the spending spree on which the government seems ready to embark after the upper house elections in July. I clearly remember that similar actions by previous governments did not produce the desired results. To the contrary, those stimulus  packages just left the Japanese people deeper in debt, a debt which now stands at one thousand trillion yen. There is a real risk that when Mr. Abe fires his ‘Three Arrows’, the economy might be hurt rather than being strengthened. It is awfully strange that in an age of rockets and guided missiles, Mr. Abe is thinking of shooting arrows.

In regards to the stimulus package of over 10 trillion yen loaded in Mr. Abe’s 2nd Arrow, it is doubtful it will hit its target of generating 2 percent growth over the next 10 years. This approach was tried many times during the last two decades by previous governments but did not show much in terms of results. In the past, the stimulus had been used to tear up roads that were in perfect condition and re-surfaced again, creating widespread traffic jams and inconvenience for all. Moreover, this kind of expenditure does not benefit anybody except the construction industry, which is rumored to have strong links to the ruling LDP politicians. It is also not productive. If the government must resort to Keynesian economics, I suggest a different approach which will be not only productive but also address problems associated with the onset of a greying society, and raise the standards of Japanese housing to the level prevalent in the United States and OECD countries.

My first suggestion is that the government should embark on building new and better hospitals, old peoples’ homes, and care centers. One in four Japanese is over 65 years old, and the number of senior citizens is projected to increase to about 38 percent of the population by 2050. We must move now to build the infrastructure needed by the greying society in their twilight years. The building of this infrastructure would generate significant business and new employment opportunities, and would pay for itself over a period of time.

My second suggestion is that in place of tearing up roads which are still in good enough condition and re-surfacing them--which seems to me an exercise in futility--the government should embark on a target of building 1 million new apartments over a 10-year period, i.e., one hundred thousand new apartments to be built every year. The purpose of this is to provide ordinary Japanese an opportunity to experience and start a higher standard of living, out of the so-called ‘rabbit hutches’ of the past and into the modern, affluent lifestyle of citizens of a modern, post-industrial society. These apartments should be built all over Japan, especially in all major cities, in sizes of 50, 100, and 150 square meters for singles, couples, and families. They should be made available at the price of one thousand yen per square meter per month, in Class A cities like Tokyo and Osaka, and at lesser cost in smaller cities. Thus, a family can enjoy living in a spacious apartment of 150 square meters in Tokyo/Osaka for JPY150,000 per month. When people move to live in these bigger apartments, they will also buy new, or bigger, furniture, curtains, refrigerators, and wide screen television sets, thus raising consumption and giving a boost to the economy. This investment in public works will also pay for itself, by rental income received, over a period of 20-30 years.

The problem with Japan is that its economy is based on exports, and if its exports are no longer growing so also not is the economy. The last two decades have witnessed little  growth in exports and this is reflected in the stagnation of the Japanese economy. To convert Japan’s economy from one based on exports to an economy geared towards creating and fulfilling domestic demand, should be one of the main targets of Mr. Abe’s third arrow aimed at structural reform.

It is no secret that Japan needs to increase domestic consumption. But this is becoming increasingly difficult as Japanese consumers are wary of spending in view of the uncertain economic landscape. Moreover, the number of people with reasonably high disposable income has been declining with the sharp increase in the number of temporary or non-regular workers. According to government figures, there is now one temporary worker for every two who are employed full-time. These workers earn meagre salaries, are not entitled to medical or other benefits, have no job security, and mostly live hand-to-mouth. They simply do not have the wherewithal to increase their level of consumption. Many of these workers don’t even marry, or marry late, in view of their marginalized existence.

A few years ago when Mr. Aso was the prime minister, he had promised to create 1.6 million new jobs, mostly by converting part-time workers to full-time. This needs to be done on an urgent basis, due to both economic and ethical reasons. Having a happy, satisfied, and fully-employed workforce is the shortest way to economic recovery and increased consumption. Why do we forget that consumption began to decline in the nineties as part-time/temporary employment started to rise.

If somebody has been continuously employed in a certain position as a temp or part-time worker for at least 5 years, it can be argued that his organization has a continuing need for that job and that incumbent. It can also be argued that this person is being exploited by his organization because by classifying that job as temporary or part-time, the employer can get away without paying him adequate wages, social security, and other standard benefits. I can say with certainty that this situation persists in most sectors of the economy. In the field of education, most universities continue to hire teaching faculty on a part-time basis even though many of these adjunct teachers have been teaching for more than 10 years. The result of such practices is that an unskilled worker in another sector who is on full-time employment may be making more money than our educators. My point here is that we need to have an approach that is people-centered. Governments are elected by the people, and they exist for the people.  It is high time the government begins to safeguard the interests of people (who elected it) rather than furthering the interests of big business only.

In my opinion, the Japanese economy need not remain in its current deflationary state since a majority of the workforce continues to be disciplined, hardworking, and loyal to the employer. With right policies, with a shift in emphasis from industry to people and from increasing exports to improving infrastructure for its senior citizens, Japan can come out  of its two lost decades and dazzle the world yet again.